EU announces new tax structure for digital companies

Commissioner Pierre Moscovici announced new tax structure for digital companies
Commissioner Pierre Moscovici © Aron Urb (EU2017EE)

At the ‘Masters of Digital 2018’ industry event yesterday in Brussels, Belgium, European Commissioner Pierre Moscovici announced a proposed new tax structure for digital companies.

The event was an opportunity for stakeholders to contribute to the development of the commission’s digital single market priorities. In particular, Moscovici emphasised the role that a new tax structure for digital companies could play in the growth of the digital single market.

The commissioner began by highlighting the current state of the digital economy in Europe: “We need to develop the digital economy to expand its benefits, from business creation to productivity. In Europe, the ICT sector generates 25% of total business R&D … This is a remarkable achievement – and one on which we must continue to build.”

How do digital companies fit in?

Moscovici explained that while digital companies have grown rapidly, corporate tax frameworks have not developed at the same pace. This, he said, has resulted in tax systems which “They rely heavily on the concept of physical presence and are underpinned by the simple principle that profits should be taxed where value is created.”

Naturally, this creates potential problems when companies can use the internet to generate much of their profit abroad, and raises questions over where and how this profit should be taxed.

How will the new tax system work?

The commissioner sought to reassure the audience that concerns over the ways that digital companies are taxed are shared by those at the highest level of European governments.

However, he cautioned member states not to take action alone for fear of impacting the single market: “A combination of fragmented, uncoordinated national ‘patches’ and solutions would negatively affect the single market, raise compliance costs and ultimately undermine competitiveness: that is the disorderly outcome we would very much like to avoid.”

Instead, Moscovici advocated an EU-level approach to addressing the problem: “An EU initiative will be costly [but] no EU action would probably be even more costly. My objective is to bring member states to a common understanding of the challenges they face, and a common view of how they can best address them. Ideally, progress should be registered at international level, to ensure as much consistency as possible.”

The proposals are still being finalised, Moscovici concluded, and so details are scarce. However, he called for stakeholders to participate in discussions around creating a fairer new tax system for digital companies.

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